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Bank crisis: the feeling’s (not) mutual

A lot of hot air? Britannia started ‘building a fairer society’, but they’ve ended up damaging the Co-Op bank’s reputation.

Back in the heady days before the banking crisis, building societies were falling over themselves to demutualise and turn themselves into PLCs.

To be fair, there may have been a degree of self-interest involved, as members of mutuals fell over themselves to turn the somewhat abstract benefits of their ‘ownership’ of the old organisation into the very concrete benefits of owning shares in the newcos.

Eventually, the field was reduced to just two: Britannia Building Society and Nationwide.

Under the leadership of Neville Richardson, Britannia made a massive play of its mutual status. Its advertising loudly proclaimed that it was ‘building a fairer society’. Because it was a mutual, savers and borrowers got a better deal.

And then the crisis bit with a vengeance. Britannia seems to have been caught in a very bad place indeed. it merged with the Co-Op bank in very quick time indeed. Mr Richardson was chosen as the ideal man to lead the new organisation, which was of course, still a mutual. (“Good with money” was the Co-Op bank’s strapline at the time.)

Alas, it turns out not to have been true. Among other factors, the liabilities that Britannia had saddled itself with have now brought the Co-Op bank to the table for more funds. £1.5 billion more funds. They’ve called it a ‘bail-in’ but it’s still going to give creditors a serious headache. It’s one of the reasons why the Treasury told the Co-Op bank it could forget all about the deal to buy the ‘spare’ Lloyds TSB branches that they were being forced to sell – which in turn has stymied the Co-Op’s efforts to become a genuine competitor to the big banks.

But it isn’t all bad news for the Co-Op. Oddly enough, the Co-Op bank doesn’t seem likely to be burnt by the bail-in. Normally, the shareholders have to lose the farm before anyone starts telling creditors that they have to take a ‘haircut’. That’s one of the reasons why bonds are conventionally seen as a less risky investment than equity.

That isn’t the case here.

Nor has Mr Richardson lost much, apart from perhaps a little sleep. He left with a payoff reported at £4.6 million and a job as a non-executive director at M&S Bank. He resigned from that role in high dudgeon yesterday.

The only loser (apart from the creditors) is the mutual movement itself, which has seen one of its prime movers disappear altogether, and another lose much of its lustre.

Thank heavens for Nationwide. At least they never set themselves the task of ‘building a fairer society’. They’re happy to tell us they’re ‘on your side’. It’s a less motivating, but perhaps more realistic aim.

And at least we have one reliable non-PLC choice when it comes to finding a big player to look after our money.